And here are the facts that he presents, the stock market crashes in 1929, and unemployment only went to 9%. What he doesn't mention is the bank runs, between 1929 and 1933 40% of the banks in the US failed. That is a tremendous amount of liquidity taken out of the system. Smoot Hawley didn't help, but Smoot Hawley wasn't an idea based in Keynes's work. FDR gets elected amidst a wave of bank failures, and a collapsing economy, because it wasn't the stock market that caused the Great Depression, it was the bank failures, failures of the economic infrastructure are the most difficult type of recession to recover from. "Regular" recessions are caused by too high inventories, production gets cut back inventories fall, the economy recovers. Because people have savings and credit is intact and an increase in production raises wages, and the economy gets moving with credit and confidence restored, deferred demand stokes the recovery. With a financial sector collapse, credit is destroyed, the recovery is slow because the lack of credit tempers the pent up demand. The economy stabilizes around a new attractor, a point where economic forces work to stabilize the economy, sometimes the economy will stabilize around 4% unemployment, if it drops below 4%, wages climb and dampen hiring, and unemployment rises back to 4%, if it rises above 4%, demand for higher wages subsides and additional hiring drops the rate, but in the depression it stabilized around 25%, a whole new set of factors took over, and with some modest increases in government spending, there were modest increases in employment (as Keynes said there would be), when the urge to balance the budget came in 1938 and spending was cut back, unemployment increased, when the massive spending of the war came, unemployment disappeared (as Keynes predicts). Even now, we had a collapse of the financial system, which destroyed credit(first time since the 30's), and this has been a particularly tough hole to dig out of. We put in place a modest stimulus, and got modest results, when it ran out, the growth rate slowed, that is all exactly what Keynes predicts. In Europe they applied austerity instead of spending and the results have been increases in unemployment, and a worsening of the economy, as Keynes predicts.
Making the assumption that you need both to fix problems is fallacious. If the Fed had done its job by, and FDR enacted policies that deregulated, CUT TAXES that Hoover implemented, and spurred more private sector growth through deregulation, we would've gotten out of the depression much earlier. As you will see, we really got out of the depression when Truman took office, when he slashed taxes and deregulated!
Really, how does that work? Because austerity never worked anywhere else, what makes you think it would have worked in 1933?
It worked in fighting the 1920 Depression -> Roaring 20s It worked in ending the Great Depression -> The booming 1950s It worked in the 1980s in fighting the recession and stagflation resulting from it (what led many to start rejecting Keynesian ideas) -> The prosperous 90s -------------------------------------------------------------------------------------------- As for expansionary fiscal policy, what do we have? A situation where it may have had an impact but nothing was conclusive enough (Great Depression) and right now, under the Obama administration, where we are now in our 6th year of recession - Almost half of people receive government aid, and the percentage of people who have stopped looking for work is the highest in 30 years. --------------------------------------------------------------------------------------------------------------------- Also, the reason you say that austerity doesn't work is because you're not willing to face the consequences of irresponsible fiscal policy. As soon as people realize that you're just going to spend and spend without any sign of paying you back, they will drop you in a heartbeat and you will face the consequences. If your solution to fixing Europe's debt problem is simply...SPEND MORE... I have very bad news for you. The United States can get away with a lot of it because of our reputation of having a robust economy and a solid currency value, but we're not invincible and thinking so is naive.
If you want to ignore what really happened, and pretend something else happened, then your theory makes sense, in the real world, your theory just doesn't fit the facts. WWII, and government spending reaching 55% of GDP, ended the Great Depression, if you want to call the Feds spending 55% of GDP "austerity"....OK After WWII there was a recession, what ended that was unprecedented social spending, free college and trade education for veterans, generous transfer payments to veterans (the 52/20 Club), Subsidized interest rate, no money down mortgages, and massive highway infrastructure spending. That spending produced the boom of the 50's and 60's. And maybe it's not written this way in the Book of Ronaldus, but the Reagan-Bush presidencies were the largest peacetime Keynesian stimulus packages in history, dwarfing anything FDR spent until right before WWII. Austerity doesn't work, and giving examples where huge spending produced prosperity, and claiming it was austerity doesn't help your case...
As you can see it wasn't until the massive drop in spending at the end of the 1940s when we saw the true prosperity of the 1950s begin. A similar thing happened in the 1920s which led to the roaring 20s. The different interpretation you make, though, is that you assume that the prosperity results from the spending, not the cuts. Austerity works because private industry GENERALLY spends wiser and more efficiently than government. View attachment 25940
If a surplus is more money in then money spent in a budget cycle, then there was no surplus during any Clinton year. Maybe you should check the federal debt yourself http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt.htm
Remember that many economists are paid by corporations, either directly or indirectly. Therefore, economists are biased towards the corporations and often promote corporate interests. Corporations don't want Americans to know that the social programs introduced by the wealthy president, FDR, helped bring the US out of the Great Depression. The corporations want an end to social programs so that the taxes of their top executives and large shareholders can be reduced. Therefore, they don't want the public to know that social programs can be helpful.
Actually, rapidly rising automation has turned us into an economy of a kind which has never existed before, so what happened in the past slowly becomes less and less relevant to what we need now. However, business was never that wise. We did have a free market in Europe and then America for hundreds of years, and we saw recessions/depressions/ panics frequently during that time. Businesses by themselves in a free market don't do a good job, perhaps because each business tends to put its own profits above the needs of the economy. Nevertheless. I support the existence of businesses because it gives people many options for improving their lives and for doing what they want to do. Many owners lf businesses enjoy the challenge and the game, and I am all for letting people do what they enjoy as much as possible. What really helps an economy is when governments give some assistance to the economy. It just happened in America that there was so much open land that the government could give people free land under the homesteading arrangements. In a free market, people would have had to pay for their land, which would have drained money from things like the development of manufacturing companies. So America got its start from assistance given by the government. I think the reason that China has been able to grow at about 10% per year for the last several decades has been due to the Chinese government not merely allowing private businesses, but rather giving assistance to those private companies. So it appears that the free market itself doesn't work very well, but a pretty much free market with the government assisting does work.
The situation at the end of World War 2 was more complex than that. During the war, the nation's factories were converted to producing weapons, so many consumer goods were no longer manufactured. For example, cars for consumers were not longer produced during the war. At the end of the war, there was much pent up demand. For example, when factories began manufacturing cars again, there were long waiting lists of people wanting to buy them. It was a wondrous coup when someone did manage to buy a car. Thus, the pent up demand caused rapid economic expansion. The fact that you don't know this might mean that the schools don't teach what happened, and for some time now, most people haven't had parents, aunts and uncles, and so forth who were adults during and just after WW2 to tell them about what happened. If the schools aren't teaching what happened, that is a bit worrisome.
Neither of those were austerity where the Govt cut spending in the middle of a recession like the Repubican Tea Party austerity we've had for the past 4 years. Both 1920 and 1946 where recessions characterized by end of war spending cuts as the economy retooled from a military to civilian economy. - - - Updated - - - We got out of the depression almost as soon as FDR's "New Deal" programs were implemented. It took the better part of a decade of strong growth to grow the economy out of the huge hole of damage the world wide GD caused.
You mean like bailouts and subsidies? Hmmm...The reason for recessions is to clean out wasteful businesses and make room for new investment and innovation. The key thing to note here, was that the recessions lasted much shorter. If the government provided some sort of welfare or slight redistribution, we would've seen even more tremendous growth at that time.
Hahaha, yeah whatever. You do realize that the proper Keynesian argument today is that world war 2 got us out of the Depression because it was actually significant spending compared to FDRs New Deal, which equated to the same old graft and vote buying Democrats are famous for in states that had not supported FDR. States that supported FDR heavily got piddly diddly. The main fact of Keynesianism is that it allows government to grow illicitly under a claim of right. A corollary is that it allows do nothing bureaucrats and other govt dependent to add some ostensible official economically "approved" gloss on their patently self interested requests for more theft from the productive of society. We have more than enough datapoints to demonstrate that not only does Keynesianism not work, but that it is a dismal failure of state economics because it adds uncertainty to the business climate and in essence is just "graft" misspelled. Give a thief a scientific reason to steal and he'll be spouting that reason to kingdom come. Hence Keynesianism. Finally, with all the datapoints over 80 or more years, the burden is ALWAYS on Keynesian apologists, sitting in their empty elementary or HS classrooms between "indoctrination periods" posting here from their taxpayer funded computers, to justify it pragmatically with measurable results and hard data. They never do that, so Keynesianism remains a convenient window dressing over illicit govt growth and self-interest.
Didn't realize it, still don't. The GD ended when FDR's "New Deal" programs were instituted. Keyensian theory, to my knowledge, provides you trim spending and raise taxes when the economy is doing well. To the contrary, we have data points of Keynesian theories working under FDR, under Reagan, and under Bush. We also have a data point on austerity under Obama. Where's your hard data proving it doesn't work as you've claimed? I've posted the data several times.
If we waited around for the private sector to manufacture F-22 Raptors or Trident submarines, we'd all be in a world of hurt. But the private sector is very good at producing corndogs and ceramic mugs.
Ahhh, yes, 100% funded by the U.S. government, just like welfare. How did I know you were going to make that claim? In fact, I can't think of many large private business that aren't into the government big time.
Your point is trivial. If Lockheed Martin and Boeing wanted to, they could allocate resources normally used to satisfy government defense needs in other pursuits. They are not bound by government and could easily refuse to specialize in domestic defense contracting if they wanted to.
